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Economics Theme 3 Definitions > Key Words > Flashcards

Key Words Flashcards

1
Q

Allocative efficiency

A

Society produces appropriate bundle of goods and services relative to consumer preferences

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2
Q

Arbitrage

A

Two market segments are equalised by the purchase and resale of products by market participants

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3
Q

Average cost

A

Total cost divided by quantity produced

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4
Q

Backward integration

A

Firm merges with a firm that is involved in an earlier part of the production chain

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5
Q

Barrier to entry

A

Characteristic that prevents new firms from readily joining the market

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6
Q

Cartel

A

An agreement between firms on price and output with the intention of maximising joint profits

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7
Q

Competition policy

A

Set of measures designed to promote competition in markets and protect consumers to enhance efficiency of markets

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8
Q

Competitive tendering

A

Process which the public sector calls for private firms to bid for a contract to provide a good or service

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9
Q

Conglomerate merger

A

Merger between two firms operating in different markets

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10
Q

Constant returns to scale

A

Long run average cost remains constant with an increase in output

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11
Q

Contestable market

A

Existing firms only make normal profits as a higher price cannot be set without attracting entry. There are no barriers to entry and sunk costs

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12
Q

Contracting out

A

Public sector places activities in the hands of a private firm and pays for the provision

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13
Q

Corporate social responsibility

A

Actions a firm takes in order to show its commitment to behaving in the public interest

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14
Q

Cost plus pricing

A

Pricing policy whereby firms set their price by adding a mark up to average cost

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15
Q

Derived demand

A

Demand for a good or service not for its own sake but for what it produces -derived demand for labour

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16
Q

Diseconomies of scale

A

Increase in scale of production leads to higher long run average costs

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17
Q

Dominant strategy

A

Game theory where a player’s best strategy is independent of those chosen by others

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18
Q

Dynamic efficiency

A

Efficiency takes into account the effect of innovation and technical progress on productive and allocative efficiency in the long run

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19
Q

Economies of scale

A

Increase in a firms scale of production leads to production at lower long run average costs

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20
Q

Economies of scope

A

Average costs fall as a firm increase output across a range of products

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21
Q

External economies of scale

A

Economies of scale that arise from the expansion of the industry

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22
Q

Firm

A

Organisation which puts together the factors of production to produce output

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23
Q

Fixed costs

A

Costs that don’t vary when output changes

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24
Q

Forward integration

A

Firm merges with a firm that is involved in a later part of the production chain

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25
Game theory
Modelling the strategic interaction between firms in an oligopoly
26
Horizontal integration
Result of a horizontal merger
27
Horizontal merger
Merge between two firms at the same stage of production
28
Industry long run supply curve
Perfect competition - the curve that is horizontal at the minimum point to the long run average cost curve
29
Internal economies of scale
Economies of scale that arise from the expansion of a firm
30
Law of diminishing returns
If a firm increases its input of one factor of production while holding inputs of the other factor fixed, it will derive diminishing marginal returns for the variable factor
31
Limit price
Highest price a firm can set without enabling other firms to make a profit
32
Long run
Period over which the firm can vary all its factors of production
33
Marginal cost
Cost of producing an additional unit of output
34
Marginal physical product of labour
Additional quantity of output produced by an additional unit of labour input
35
Marginal productivity theory
Argue that the demand of labour depends on balancing the revenue that a firm gains from employing an additional unit of labour against the marginal cost of that unit to labour
36
Marginal revenue
Additional revenue gained by a firm from selling an additional unit of output
37
Marginal revenue product of labour
Additional revenue received by a firm as it increases output by using an additional unit of labour input- the marginal physical product of labour times by the marginal revenue received by the firm
38
Market structure
Market environment within which firms operate
39
Minimum efficient scale
Level of output at which long run average cost stops falling as output increases
40
Minimum wage
Government set minimum wage rate below firms are not allowed to pay
41
Monopolistic competition
Market that shares some characteristics of a monopoly and some of perfect competition
42
Monopoly
Form of market structure where there is only one seller of a good or service
43
Monopsony
Single buyer of a good or service
44
Multinational corporation
Conducts operations in many countries
45
N-firm concentration ration
Measure of the market share of the largest n firms in an industry
46
Nash equilibrium
Each player’s chosen strategy maximises payoffs given the other persons choice - no player has the incentive to alter behaviour
47
Natural monopoly
Substantial economies of scale forming a monopoly
48
Non-pecuniary benefits
Benefits offered to workers by firms that are not financial in behaviour
49
Normal profit
Profit that covers opportunity cost of capital and is just diffident to keep the firm in the market
50
Oligopoly
There are few sellers which each firm must take account of the behaviour and likely behaviour of rival firms
51
Oligopsony
Few buyers of the good or service
52
Overt collusion
Firms openly work together to agree on prices in the market
53
Participation rate
Proportion of the population of working age in employment or seeking work
54
Perfect competition
Form of market structure that produces allocative and productive efficiency in the long run
55
First degree price discrimination
Monopoly firm is able to charge consumers at different prices
56
Predatory pricing
Anti competitive strategy Firm sets price below average costs to force out rivals to achieve market dominance Raises prices
57
Price taker
Firm that accepts whatever price is set in the market | Supply and demand forces
58
Principal agent problem
Conflict between the objectives of the principals and those in agents who take decisions on their behalf
59
Prisoners dilemma
Game theory with a range of applications in oligopoly theory
60
Private finance initiative
Funding arrangement which the private sector designs for the public sector in return for an annual payment linked to its performance on delivering that service
61
Product differentiation
Makes products different from competitors
62
Productive efficiency
Chosen appropriate combinations of factors of production and produce the maximum output possible from those inputs this producing at minimum long run average cost
63
Public- private partnership
Government service or private service venture is funded
64
Regulatory capture
Regulator of an industry comes to represent the industry’s interests rather than regulating it
65
Relevant market
Market to be investigated under competition law | Mo major substitutes omitted but non-substitutes are included
66
Satisficing
Managers produce satisfactory results for the firm | Do not try to maximise profits
67
Short run
Period over which a firm is free to vary the input of one of its factors of production (labour) but faces fixed input (capital)
68
Short run supply curve
Firm operating under perfect competition, curve given by its short run marginal cost curve above the price at which MC=SAVC for the industry, the horizontal sum of the supply curves of the individual firms
69
Supernormal profits
Exceeding normal profits
70
Tacit collusion
Firms refrain from competition on price but without communication or formal agreement
71
Third degree price discrimination
Charge a group of consumers a different price for the same product Peak times Age groups
72
Variable costs
Costs that vary with the level of output
73
Vertical merger
Firms in the same industry but at different stages of production
74
X-inefficiency
Firms not operating at minimum cost perhaps because of organisational slack

Economics Theme 3 Definitions (1 decks)

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